Is Chancellor Philip Hammond about to make Aberdeen boom again?

The North Sea oil and gas industry is expected to get a multi-billion pound boost from the UK Government this week.

Chancellor Philip Hammond is to deliver his most
important Budget to date on Wednesday.

The Sunday Times reports he is poised to throw a
tax lifeline to oil and gas producers in an attempt to unleash an estimated
£40billion of new North Sea investment.

It says Mr Hammond is expected to unveil a plan
to revive the industry, which has shed tens of thousands of jobs - many of them
in Aberdeen and other parts of Scotland - following the plunge in the oil
price.

This weekend, the Chancellor said he was
“looking at” a change in the tax rules that would allow producers selling
fields to roll over credits to new owners. The reform would enable buyers to
reclaim the costs of decommissioning when wells run dry. The overhaul is
designed to make it easier to buy and sell oil fields and keep them producing
longer.

Urgency

Mr Hammond said that the Treasury would need to
“make sure (the reform) is robust and that we don’t inadvertently create scope
for gaming on a grand scale in the tax system”.

Deirdre Michie, chief executive of industry body
Oil & Gas UK, said earlier this year: "The UK Continental Shelf
continues to offer an attractive range of opportunities and it is vital that we
draw in a diversity of investors to ensure these are realised.

"Enabling assets to transfer when appropriate
to new owners is key to this strategy. As the Chancellor has indicated, the tax
regime has presented some significant barriers to asset trading, which we have
been working on with Treasury for a number of years. These must be addressed as
a matter of urgency."

The Chancellor is in an unenviable position with
Wednesday's Budget - facing pressure for ‘bold action’ that stems from public
dissatisfaction with austerity measures and squeezed public sector pay, while
also having to contend with anticipated higher budget deficits over the medium
term.

Conservative MPs expect Mr Hammond to set the
agenda for the rest of the Government’s term and deliver a vision of how
Britain will prosper outside the European Union.

What else is in store?

News on other headline-grabbers likely to
be in the Budget is also emerging.

The Sunday Times said the Chancellor is to
announce plans to build 300,000 homes every year.

He will unveil billions of pounds of extra
investment, plus new powers and planning rules to ensure construction firms
start building on sites that already have planning permission.

A close friend of the Chancellor has told the
BBC that he plans to use "headroom" in the public finances to target
spending on housing and health.

Stephen Hammond - a former transport minister -
said the Chancellor wants to use the Budget to attack problems that contributed
to the Tories' poor election performance.

Testing of driverless cars on UK roads is also
expected to be given the green light.

In addition, investment in technology -
including artificial intelligence and 5G mobile networks - will be announced.

Environment

The Chancellor is also expected to call for
evidence on whether a tax on the use of the most environmentally damaging
single-use plastics, such as takeaway boxes and bubble wrap, would help tackle
the problem of plastic waste.

Meanwhile, the EY Item Club said in its Budget
preview that the Chancellor seemed set to remain committed to the fiscal
targets he set out in the autumn statement last November.

Howard Archer, chief economic adviser to the
Item Club said: “The Chancellor is getting squeezed on both sides. He is under
pressure to increase levels of public spending, but he now faces larger
deficits over the medium term and he has to square the circle."

The Item Club added that, if he has the
appetite, the Chancellor could choose to take some bold measures in the Budget
while maintaining fiscal discipline. However, this would necessitate
rebalancing measures.

It said: "For example, the Chancellor is
reportedly considering the promotion of 'intergenerational fairness' through
cutting National Insurance Contributions for younger workers and financing it
by restricting pension tax relief for older workers."

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